The end of the decade in Hong Kong was marked by a long-awaited announcement: The Hong Kong Monetary Authority granting licences to 8 digital banks. The goal is to establish digital financial solutions that will be at the public’s disposal 24/7, delivering fast and efficient financial services.
Virtual banks will take time to develop, but they are already heating up the market, creating competition for the existing financial institutions. They are a significant part of the Smart Banking Initiatives established with the aim to improve customer experience and facilitate financial evolution.
A virtual bank is a financial institution that offers retail banking services through an electronic channel, without having to establish a physical branch as it is the case with the traditional bank. All operations will be conducted online, however, virtual banks will be expected to establish a physical office in Hong Kong, intended for dealing with customer and HKMA concerns.
The movement appeared as a response to growing customer demands prompted by the younger demographic pool, which consists of Millennials and Generation Z users who are open and prone to accepting advanced technologies in all areas of life - banking included.
Furthermore, with recent changes - particularly the appearance of faster internet speeds and growing adoption of smartphone devices - we can expect a further increase in the need for virtual banking, mobile banking and similar services.
So what makes this alternative so attractive?
A virtual bank is intended to allow any potential client to open up a bank account in no more than a few minutes using just their Hong Kong identity card. By eliminating the tedious paperwork and processes from the equation, users are not only getting a much approachable banking alternative - they will benefit from a boost of efficiency.
The best thing is - any service will be available 24 hours a day, accessible from a mobile or any other digital device at all times, giving virtual banking users in Hong Kong greater control of their finances.
Like traditional banks, virtual banks will be able to offer a similar range of services, including the issuing of deposits and loans for both business and personal users. For businesses, in particular, this new banking model means simplified payments and easier transactions to its clients, partners and employees.
Still, virtual banks are expected to widen their scope of products and services at a quick pace and stay on the industry pulse.
Virtual banking brings all essential information to the palm of your hand. Without even having to move one inch, users can inspect their finances - use their mobile phones to go through all their transactions at any time, for any given period since the day they first opened their virtual bank account. This allows people to better manage their accounts and create better savings plans.
One of the main ideas behind introducing virtual banking was to offer more affordable solutions. They are considered a more cost-effective alternative due to the absence of physical branches and are, as such, expected to display long-term profitability.
What is more, virtual banking imposes flat ATM fees and enables its users to withdraw their funds in local currency. In the long run, users are looking at much lower banking costs that will benefit them on a both personal and professional plan.
Lower fees also mean greater chances for small and medium-sized businesses that are looking for ways to establish themselves in the industry and maintain a strong position. With lower overheads and a chance to work on a global scale, SMBs are getting a more solid base upon which they can build their success.
Private virtual banking users may be looking at lower loan and mortgage rates. At this point, we expect to see no-fee offers, a no-minimum balance requirements, all resulting from the minimised banking expenses (as there are no expenses related to staff or rent, and similar costs).
By offering its clients to make international payments with low fees (or without any fees at all) virtual banks have contributed to the growing interest in overseas business operations.
On the one hand, ambitious people from around the globe were offered better employment opportunities, as virtual banking allows them to apply for remote positions. On the other, companies got to broaden their search and hire talented professionals regardless of their location. As a result, businesses get a competent workforce without an unnecessary burden on their budget.
Virtual banking in Hong Kong will also largely influence business development. With easier and instant international transactions, companies will not hesitate to grow their client base and aim for remote markets. Using a single account, businessmen will be able to collect, hold and send payments in multiple currencies.
Unlike traditional banks, virtual banks in Hong Kong will not have to be majority-owned by a regulated financial institution. In fact, non-financial institutions like eCommerce businesses and tech companies will have the chance to become the majority shareholders and in that way contribute to the further development of FinTech solutions.
Thanks to their strong financial capabilities, tech giants and other strong financial players on the market will invest their resources into developing and encouraging further innovation.
However, it is not just about what virtual banks themselves will bring to the table. The growing competition in the financial market is motivating traditional institutions to rely on digital and electronic banking strategies, as well.
Though virtual banks are expected to bring about numerous benefits, we are yet to see how fast virtual banking in Hong Kong will be accepted by the residents. Namely, as people are accustomed to traditional services, it will take time for them to realise the potential of new FinTech solutions.
In any case, the Hong Kong Monetary Authority will monitor virtual banks’ operations and conduct a regular assessment to ensure they perform as expected. After all, the ultimate goal is to establish FinTech resources that will contribute to establishing and maintaining the stability of the Hong Kong banking sector.